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Stock Analyst Update

Amazon Reports Strong Growth Amid a Sea of Red Ink

After a quarter of bang-up growth, the online retailer says it's ready to start paring its losses and move toward profitability.

After the markets closed Wednesday, online retail bellwether Amazon.com (AMZN) reported that its fourth-quarter revenues hit $676 million, up 90% over the third quarter and 167% over last year's fourth quarter. Net losses increased to $323 million, or 48% of revenue; pro forma operating losses (excluding amortization and one-time charges) more than doubled to $185 million, or 27% of revenue.

These results were in line with the company's stated plan to ramp up marketing spending during the quarter in order to grow its customer base, even if that meant bigger losses in the short term. Indeed, Amazon's customer base increased 30% during the quarter to nearly 17 million, cementing its position as the leading online retailer. CEO Jeff Bezos said in a conference call that he expects the losses to peak this quarter and that they should decrease steadily in 2000.

In fact, Bezos placed a lot of emphasis during the call on improving profitability and returns on capital. He proudly noted that the company's core U.S. book business was profitable in the fourth quarter and is expected to stay profitable through 2000, and said that the company's overall losses as a percent of sales should shrink to the single digits by the end of this year.

This rhetoric was in sharp contrast to last quarter, when Bezos downplayed profitability and stressed Amazon's customer growth and expansion into new businesses. Now that Amazon has pulled decisively ahead of its online rivals and successfully leveraged its brand beyond books (it's now the leader in online video and DVD sales, for example), it seems to be taking a breather and finally thinking about making money. The next year will be a make-or-break one for Amazon, as it works toward translating its huge customer base and operating efficiency into actual profits.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.